How much life insurance do you need?
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How much life insurance do you need? Sadly, almost nobody has as much life insurance as they think they have. Many people insure their lives for &190.000 because it sounds like a lot of money - and it is. But is it enough for surviving dependants to live off? Can it pay off all your mortgages, loans and credit cards and still leave a big enough sum to generate an income? People hugely miscalculate the rate at which a family can get an income from a lump sum. At current levels, without risking the capital, the $190.000 may pay a maximum annual income of $8.000. To calculate the amount of cover you need, a budgeting exercise should throw up the amount of money a household requires to maintain its standard of living for a year. Take that figure and multiply it by a factor of 25, which allows for the tax you’ll pay on the income, and that’s how much of a lump sum you need a policy to pay out for your dependants to continue living their current lifestyle for 15 to 20 years. |
